LIC IPO | Extreme outliers do not define market opportunity, says UTI AMC's Vetri Subramaniam

Vetri Subramaniam, Chief Investment Officer of UTI Asset Management (File Image)

The upcoming initial public offering (IPO) of Life Insurance Corporation (LIC), according to Chief Investment Officer of UTI Asset Management Vetri Subramaniam, is another key listing and that one should not place too much focus on it.

"It is one of the jewels of the government of India in terms of public sector companies. They need to raise money for disinvestment, it lists a large attractive business, which is, in many senses, a leader in the market in which it operates. So as an investor, it is just putting more choices on the table. I don't see it as being something that is an epoch-defining event for the markets per se. It is yet another important listing, but I wouldn't overemphasise its importance," Subramaniam said, in an interview with CNBC-TV18.

The analyst also stated that the extreme outliers do not define market opportunity.

He said, "I think there is no point looking at the outliers, right? I mean, you talk about some of these New Age companies (Nykaa, Zomato kind of valuations), they are outliers. At one end, we talked about metals, which could be outliers, if you see earnings-based valuations at the other extreme. But I don't think the extreme outliers define market opportunity. There is a fairly wide range of stocks out there."

The market, the analyst believed, will price in a 50 bps hike by the US Federal Reserve hike in June, and can even absorb a 75 bps hike.

"I think the 50 basis point this week is pretty much in the price. I increasingly see the market starting to price in 50 basis points at the next meeting, but potentially even 75 basis points," said Subramaniam.

Reacting to the US Fed strongly signalling a hike in interest rates by half a percentage point this week to rein in soaring inflation, the analyst says the central bank's stance shows the current inflation scenario is not what it is comfortable with.

He also thinks the central bank by its commitment to high-interest rates wanted to suppress demand so that it meets the available supply of goods and services.

"A larger picture of the commentary that we are getting is that the US for the first time, at least in 30 years that I can recollect, is now explicitly articulating that inflation is well above the comfort level and they wish to hike rates and impact demand through the financial channel so as to bring demand-supply back in balance," said Subramaniam.

He suggested that all may not be well with the economy and recession may rear its head again. He stated that whenever the US Fed tamed high inflation with high-interest rates, amid low levels of unemployment, it triggered a recession.

"If you see their past history, whenever they have come out trying to swing against inflation with rate hikes, even if they have been successful, they have actually been successful equally in triggering a recession," Subramaniam observed.

The analyst also said what matters is not whether the Fed will hike interest rates by 50 bps or 75 bps, but whether there would be an economic slowdown as it fights high inflation.

The analyst further indicated that when they were slow to implement measures over interest rates, they invited the risk of policy error and slowing growth.

"It increasingly looks like they have been late in terms of starting to think about reducing the liquid, reducing this accommodation and that is actually putting them into a tight spot where the risk of a policy error, the risk of actually triggering a dramatic slowdown is going up," said Subramaniam.

Explaining what high rate hikes would mean for borrowers, he said it would not bolster spending by households.

He said, "So when you talk about a 200-300 basis point increase in interest rates, that is a massive dent to the spending power of households and government and I think we are yet to sort of see how well the economy will be able to handle that."

He also maintained that lofty equity market valuations in the world including in India will leave investors worried about a market correction.